Yen Gains as G-7 Officials Offer Conflicting Views on Volatility

By Joseph Ciolli and Taylor Tepper -
Feb 12, 2013

The yen gained versus the dollar and
euro after unnamed Group of Seven officials gave conflicting
signals over whether member nations are concerned that excess
moves in the Asian currency will endanger trade relations.

Japan’s currency gained at least 0.3 percent against all of
its 16 most-traded peers as an official in Washington, who
requested not to be identified, said the nations are concerned
about excessive moves in the yen and that Japan will be
discussed at the Group of 20 meeting this weekend. It later
pared some of the advance after a U.K. official who requested
anonymity said the G-7 was not singling out an individual
country or currency. The pound fell to a six-month low on bets
the Bank of England will lower its growth forecast tomorrow.

“People understand that if anyone’s going to have their
feet to the fire right now in terms of currency weakness, it’s
going to be Japan,” Douglas Borthwick, a managing director and
head of foreign exchange at Chapdelaine FX in New York, said in
a telephone interview. “Officially, the most important
countries are not singling out Japan. It seems that there are a
couple that are, but not officially.”

The yen rose 0.9 percent to 93.47 per dollar at 5 p.m. in
New York after appreciating as much as 1.5 percent. The Japanese
currency strengthened 0.5 percent to 125.77 per euro. The 17-
nation currency rose 0.4 percent to $1.3454.

Pound, Loonie

Sterling dropped against most major peers as a slower
growth forecast in the quarterly Inflation Report would
underline the case for keeping interest rates at a record low.
The U.K. currency was little changed at $1.5663 after declining
to $1.5573, matching the low set on Aug. 8. It depreciated 0.3
percent to 85.89 pence per euro.

Canada’s dollar rose from the weakest this month versus its
U.S. counterpart as the discount the nation’s crude oil trades
at compared with the American benchmark was at the lowest level
in three months. The so-called loonie appreciated 0.3 percent to
C$1.0023 per U.S. dollar.

The Swiss franc was little changed against the euro even
after the Swiss National Bank said it will keep applying its
ceiling of 1.20 per euro and was ready to take additional
measures. The franc traded at 1.2338 per euro after rising as
much as 0.4 percent. The currency strengthened 0.4 percent to
91.70 centimes per dollar.

‘Currency Skirmish’

“The international countries are trying to put pressure on
Japan, but it’s not clear they’re willing to go to the next step
and take the next actions,” Nick Bennenbroek, head of currency
strategy at Wells Fargo & Co, said on Bloomberg Television’s
“Market Movers” with Tom Keene, Scarlet Fu and Sara Eisen.
“It’s more of a currency skirmish than a currency war.”

The yen rose earlier against the euro after the G-7
released a statement that appeared to signal acceptance for a
weaker Japanese currency, so long as Prime Minister Shinzo Abe’s
government didn’t actively pursue devaluation.

G-7 finance ministers and central-bank governors said in
the statement released in London, “we reaffirm that our fiscal
and monetary policies have been and will remain oriented towards
meeting our respective domestic objectives using domestic
instruments, and that we will not target exchange rates.”

Growth ‘Threat’

The first unnamed official then released a
“clarification,” saying that the group’s member countries were
targeting the yen’s recent volatility.

The clarification “showed officials were really concerned
about the pace of yen weakness, which they seem to see as a
potential threat to global growth.” Joe Manimbo, a market
analyst at Western Union Business Solutions, a unit of Western
Union Co., said by telephone from Washington, D.C. “It was a
vague, bland statement at first.”

The G-7 officials will join finance ministers and central
bankers from the G-20, which includes the G-7 and emerging
markets such as Brazil, China and India, in Moscow on Feb.
15-16.

The euro has rallied 2 percent versus the dollar this year
as banks have started paying back the European Central Bank’s
emergency three-year loans early, shrinking its balance sheet
just as the Federal Reserve and Bank of Japan expanded theirs.
That’s prompted talk of a “currency war” between central banks
trying to boost growth through lower exchange rates.

U.S. Treasury Undersecretary Lael Brainard told reporters
in Washington yesterday that the U.S. supported Japan’s attempt
to “reinvigorate growth,” while cautioning all countries
against competitive devaluations.

“She endorsed Japan’s actions,” Adam Button, a currency
analyst for Forexlive.com in Montreal, said in a telephone
interview. “And so long as Japan has the U.S. in its corner, it
has nothing to worry about.”